Balanced Scorecard: Success through Leadership Enablersmadridexcelente.com/congreso2008/docs/Dr_Vora_BSC.pdf · Balanced Scorecard: Success through Leadership Enablers Manu K. Vora,

Balanced Scorecard: Success through

Leadership Enablers

Manu K. Vora, Ph.D., MBA, ASQ CQE & FellowASQ Grant Medalist (2001), ASQ Lancaster Medalist (2005)

Adjunct Professor, Stuart School of Business, IIT, Chicago, USA

Past Vice President, American Society for Quality (ASQ)

Chairman and President, Business Excellence, Inc.

P. O. Box 5585, Naperville, IL 60567-5585, USA

Tel: 630-548-5531, [email protected]

Website: http://www.b-einc.com

Invited Master Conference at International Congress of Excellence

Madrid Excelente, Madrid, Spain, 7th October, 2008

Business Excellence, Inc., 2008 10-07-2008 2

Personal Background

� Subject Matter Expert - Customer Satisfaction, Employee Satisfaction

and Process Improvement, 1985-present.

� Managed Balanced Scorecard Measurements - Customer, Employees,

and Processes, 1985-present.

� Taught Balanced Scorecard Workshop in Costa Rica, India, Mexico,and USA, 2003-present.

� Managed USA Malcolm Baldrige Quality Award Customer SatisfactionCategory at AT&T Bell Laboratories, 1990-1994.

� Managed Voice of the Customer program, AT&T/Lucent Technologies Customer Technical Support and Switching & Access Division, 1995-2000.

� Taught “Quality Management” course, Baldrige based at Stuart School of Business, Illinois Institute of Technology, Chicago, 1993-present.

� Chief Judge, Illinois Team Excellence Award Program, Chicago, 1993-1999.

� Judge, International Asia Pacific Quality Award Program, 2004-Present.

� Received ASQ Grant Medal (2001) & Lancaster Medal (2005).


IntroductionNeed for a Balanced Scorecard (BSC)

Leadership Enablers for BSC Success:

1. Build and Maintain a Cohesive Leadership Team

2. Create Organizational Clarity:

� Creating Business Strategy

� Measuring Business Strategy

3. Over-Communicate Organizational Clarity:

� Managing Business Strategy

� Hoshin Planning – Alignment & Reviews

� Building a Balanced Scorecard

� Critical Success Factors for BSC

4. Reinforce Organizational Clarity Through Human Systems:

� Reward and Recognition Systems

BSC Case Studies

Major References


Work

God &

Prayer

Family &

Friends

Play

A Balanced Life

Balanced

Life


Financial

Customer

Employee

Process

The Balanced Scorecard

Vision &

Strategy


Sample Users of Balanced Scorecard


Need for a Balanced Scorecard

�If you can’t measure it, you can’t manage it.

�Measurement system strongly affects the

behavior of people both inside and outside

the organization.

�Leaders must communicate need for

measurements and how the measurements will

be used.


LAGGING

Financial

CURRENT

Customer

LEADING

Employee

LEADING

Process

BSC - INDICATORS

Vision &

Strategy


Leadership Enablers*

for BSC Success

1. Build and Maintain a Cohesive Leadership Team

2. Create Organizational Clarity

3. Over-Communicate Organizational Clarity

4. Reinforce Organizational Clarity Through Human Systems

* Reference: Patrick Lencioni, “The Four Obsessions of an Extraordinary Executive”, Jossey-Bass, 2000.


1). Build and Maintain a

Cohesive Leadership Team

Cohesive teams build trust, eliminate politics, and increase efficiency by…

�Knowing one another’s unique strengths and weaknesses

�Openly engaging in constructive ideological conflict

�Holding one another accountable for behaviors and actions

�Committing to group decisions


2). Create Organizational Clarity

Vision

Mission

Values

Integrated

Business Plan

One-Year Plan

Balanced Scorecard

(Goals/Strategies/Objectives/Plans)

Hoshin Planning


Eastman Chemical Company:

Strategic Intent

Vision: To be the world’s preferred chemical company

Mission: To create superior value for -

� Customers

� Employees

� Investors

� Suppliers

� Public

Guided by: Company directions

Driven by: Quality policy - The Eastman Way

Focusing on: Exceeding customer expectations while

achieving our major improvement opportunities

Best Practice Example


Linkages to Strategy

Key business drivers

(key success factors)

Strategies and

action plans

Measures and indicators


Measuring Business Strategy

Customer Perspective (General):

�Customer Satisfaction

�Customer Retention

�New Customer Acquisition

�Customer Profitability

�Market and Account Share in Targeted Segments


Measuring Business StrategyLearning & Growth Perspective (General):

�Employee Capabilities:

�Satisfaction (Action plans for improvement)

�Retention (Management versus Non-Management;

New versus Experienced)

�Productivity (Effective Meetings, Effective Teamwork, etc.)

� Information Systems Capabilities:

�Excellent Information on Customers, Internal Processes and the

Financial Consequences of their Decisions

�Motivation, Empowerment and Alignment:

�Number of suggestions made and its business impact

�Personal and organizational goal alignment using Policy Deployment

process (Hoshin Planning)



Internal Process Perspective (General):

�Process Defect Rates (parts per million)

�Yields (ratio of good items produced to items

entering the process)

�Waste

�Scrap

�Rework

�Returns

�Percentage of Processes under Statistical Process

Control



Financial Perspective (General):

�Return on Investment (ROI)

�Operating Income (Revenue - Manufacturing

Costs - S&M)

�Growth in Sales

�Operating Return on Sales

�Cash Flow Generation

�Cost Reduction/Productivity


Tools for Measurements

�Customer - Survey Analysis using a Quadrant

Chart

�People - Employee Engagement Questionnaire

�People - Employee Education/Training

Effectiveness

�Process - Florida Power & Light Quality

Improvement (QI) Story

�Finance - Sarbanes-Oxley Compliance Audits


The Quadrant Chart

Keep Up the Good

Work

(Hold the Gains)

Possible Oversupply

(Reassign Resources)

Importance W

eights

Source: Terry G. Vavra, Quality Progress, Vol. 35, No. 5, 69-75, 2002.

Satisfaction Ratings

Focus on an

Opportunity

(Must Improve)

Low Importance

Low Priority

(Maintain Current

Status)


Employee Engagement Questionnaire1. Do you know what is expected of you at work?

2. Do you have the materials and equipment you need to do your work right?

3. At work, do you have the opportunity to do what you do best every day?

4. In the last 7 days, have you received recognition or praise for doing good

work?

5. Does your supervisor, or someone at work, seem to care about you as a

person?

6. Is there someone at work who encourages your development?

7. At work, do your opinions seem to count?

8. Does the mission/purpose of your company make you feel your job is

important?

9. Are your associates (fellow employees) committed to doing quality work?

10. Do you have a best friend at work?

11. In the last 6 months, has someone at work talked to you about your progress?

12. In the last year, have you had opportunities at work to learn and grow?

“First Break All the Rules”, Buckingham & Coffman, 1999.


Training Investment/Effectiveness

Training Effectiveness

T

r

a

i

n

i

n

g

$


FPL’s QI Story

� Step 1. Reason for Improvement (theme)

� Step 2. Current Situation (define problem, set target

for improvement)

� Step 3. Analysis (identify & verify root causes of the

problem)

� Step 4. Countermeasures (to correct root causes)

� Step 5. Results (root causes have decreased)

� Step 6. Standardization (prevent reoccurrence)

� Step 7. Future Plans (next problem)

Marshall-Qualtec, Inc. 1997 (FPL - First US Deming Prize winner)


Sarbanes-Oxley Compliance Audits

� The CEOs and CFOs of publicly traded companies doing

business in the United States are now personally responsible to

ensure that corporate financial reports are accurate and

complete.

� The business processes that feed data into those reports are

effective, complete and reliable - or face substantially increased

penalties for non-compliance.

� Business Process Owners and Senior Management complete

periodic self-assessment surveys.

� The Management Reviews include self-assessment surveys

information along with audit results, customer feedback and

complaints.


Managing Business Strategy

Key Barriers:

�Vision and Strategy not Actionable

�Strategy not Linked to Departmental, Team,

and Individual Goals

�Strategy not Linked to Resource Allocation

�Feedback that is Tactical, not Strategic


3). Over-Communicate

Organizational Clarity

Healthy organizations align their employees around

organizational clarity by communicating key messages

through …

�Repetition: Don’t be afraid to repeat the same

message, again and again.

�Simplicity: The more complicated the message, the

more potential for confusion and inconsistency.

�Multiple Mediums: People react to information in

many ways; use a variety of mediums.

�Cascading Messages: Leaders communicate key

messages to direct reports; the cycle repeats itself until

the message is heard by all.


Hoshin Planning in Action

CEO/President

Executive Staff

Vice Presidents &

Directors

Department A Department B

Group 1 Group 1Group 2 Group 2

Implem

ent, R

eview

,

and Adjust H

oshin

Catchball

Five-year vision

(4 strategic goals)

One-year plan

(Objectives & Action plans)

Deploy Hoshin


Sample Users of Hoshin Planning


Building a Balanced Scorecard

Managing the Process:

�Select the appropriate organizational unit (Division,

Strategic Business Unit [SBU], etc.)

� Identify SBU/Corporate Linkages

�Build Consensus around Strategic Objectives

(Interviews, synthesis session)

�Select and DesignMeasures

�Build the Implementation Plan (Develop and deploy

plan)

�Typical time frame to implement a Balanced Scorecard

about 16 weeks.


Critical Success Factors for

Implementing a Balanced Scorecard

�Link measures to strategy

�Validate the link between measures and

strategy

�Set the right performance targets

�Measure correctlySource: Ittner and Larcker, HBR, November 2003.


4). Reinforce Organizational Clarity

Through Human Systems

Organizations sustain their health by

ensuring consistency in …

� Hiring

�Managing Performance

� Rewards and Recognition

� Employee Dismissal


Reward System

�Allocate bonus based on:

�All four categories - (Customer, Employee,

Process, and Financial):

- 25% for each category of measurement

�Bonus based on Meeting or Exceeding

Stretch Goal Results:

- Meets – 100%, Exceeds - >100% per

agreement with the Leadership Team


Employee Motivation:

A Case for Recognition

�In the last six months, how many of you

received recognition?

�In the last six months, how many of you

gave recognition to others?

�Does your company have a systematic

recognition process? For how long?

�How many of you think you are getting

too much recognition?


Case for RecognitionWhat Do Employees Really Want?

�Supervisors were asked to identify one

thing most important to employees:

� Money

�Employees were asked to identify most

important aspect in the work place:

�Full appreciation for work done

Source: Aetna Life & Casualty Employee Survey.


Employee Motivation

Recognition/Celebration:

�Day-to-day (thank you note, memo, e-mail)

�Informal (team milestone completion -

memento)

�Formal (nomination, evaluation, celebration)

�Determine need for employee recognition

�Manage Recognition/Celebration as a Process

�Allocate Budget and Measure Quarterly Results


Employee Motivation

Suggestion System:

�Employees have knowledge

�Create a simple process to gather,

acknowledge, and act on suggestions

�Involve employees who gave suggestions

during the implementation of their idea

�Recognize & reward employees whose

suggestions are implemented with positive

impact


Balanced Scorecard - Case Studies

�A Fast Food Chain, USA Performance Measures

� IBM Rochester, USA Causal Relationships

� Sears, USA Employee-Customer-Profit Chain Model


Selection and

Staffing

Employee

Satisfaction

Customer

Buying Behavior

Customer

Satisfaction

Employee-added

Value

Sustained

Profitability

$ Shareholder

Value

New hires

Education

Work experience

Supervision

Support

Fairness

Empowerment

Accountability

Quality

Shopping Experience

Timeliness

Frequency

Retention

Referral

Each outlet

Over time

Better than competition

Growth

Earnings

Free cash flow

Which Measures

MatterIttner & Larcker,

HBR, Nov. 2003


Products and

Channels

Product and

Service quality

People and SkillsCustomer Satisfaction

and Loyalty

Financial and

Market Share

Learning Internal Customer Financial

Causal Relationships – IBM Rochester’s

Balanced Scorecard

Source: Evans and Lindsay, 6th Edition, 2005.


Employee

Attitude and

Behavior

Customer

Impression

Revenue

Growth

A Compelling

Place to Work

A Compelling

Place to Shop

A Compelling

Place to Invest

+ 1.3 % + 0.5 %

Employee-Customer-Profit Chain, Sears, USA

Source: Rucci et al., Harvard Business Review, 1998.

+ 5.0 %


Balanced Scorecard – ERP Software

� Oracle Balanced Scorecard

� SAP Strategic Enterprise Management (SEM)

� PeopleSoft Balanced Scorecard

� Microsoft Business Scorecard Manager 2005

� Hyperion System 9 Performance Scorecard

� Corporater Balanced Scorecard Suite

� Performancesoft views

� Business Objects Enterprise Performance Management Solutions

� Microsoft Excel Spreadsheet

THE BALANCED SCORECARD IS NOT A SUBSTITUTE FOR GOOD

MANAGEMENT. IT IS ONLY A TOOL. IT REQUIRES GOOD MANAGEMENT.


Recipe for Success1). Build and Maintain a Cohesive

Leadership Team…

2). Create Organizational Clarity…

Vision/Mission/Values

Strategic Plan & Measures

3). Over-Communicate

Organizational Clarity…

Hoshin Planning

Doing it Right!

Successfully implement business strategy

4). Reinforce Organizational Clarity Through Human Systems …

Rewards and Recognition


Major ReferencesBaldrige National Quality Program (2007), Criteria for Performance Excellence, US NIST, Gaithersburg, MD, http://www.quality.nist.gov

Beatty, R. W., Huselid, M. A., & Schneier, C. E. (2003), “New HR Metrics: Scoring on the Business Scorecard”, Organizational Dynamics, Vol. 32, No. 2, pp. 107-121.

Bounds, G. M. (1996), Cases in Quality, Irwin Publishing, Chicago, IL.

Buckinghm, M. & Coffman C. (1999), First, Break All The Rules, Simon & Schuster, New York, NY.

Eckerson, W. W. (2006), Performance Dashboards: Measuring, Monitoring and Managing Your Business, John Wiley & Sons, Inc., Hoboken, NJ

Evans J. R., & Lindsay, W. M. (2005), The Management and Control of Quality, 6th ed., Thompson South-Western, Mason, OH.

Goodman, J., DePalma, D., & Broetzmann, S. (1996), “Maximizing the Value of Customer Feedback”, ASQ Quality Progress, December.

Ittner, C. D. & Larcker, D. F. (2003), “Coming Up Short on Nonfinancial Performance Measurement”, Harvard Business Review, Vol. 81, No. 11, pp. 88-95, November.

Kaplan, R. S. & Norton, D. P. (2004), “Measuring the Strategic Readiness of Intangible Assets”, Harvard Business Review, Vol. 82, No. 2, February.

Kaplan, R. S. & Norton, D. P. (2001), The Strategy-Focused Organization, Harvard Business School Press, Boston, MA.

Kaplan, R. S. & Norton, D. P. (1996), The Balanced Scorecard, Harvard Business School Press, Boston, MA.

Kaplan, R. S. & Norton, D. P. (1992), “The Balanced Scorecard: Measures That Drive Performance”, Harvard Business Review, Vol. 70, No. 7, July-August.

King, B. (1989), Hoshin Planning Symposium, ASQ, February, Milwaukee, WI.

Kirkpatrick, D. L. & Kirkpatrick, J. D. (2006), Evaluating Training Programs: The Four Levels, 3rd Edition, Berrett Koehler Publishers, San Francisco, CA.

Lencioni, P. (2000), The Four Obsessions of an Extraordinary Executive, Berrett Koehler Publishers, San Francisco, CA.

Nelson, B. (1997), 1001 Ways to Energize Employees, Workman Publishing, New York, NY.

Nelson, B. (1994), 1001 Ways to Reward Employees, Workman Publishing, New York, NY.Rucci, A. J., Kirn, S. P., & Quinn, R. T. (1998), “The Employee-Customer-Profit Chain at Sears”, Harvard Business Review, Vol. 76, No. 1,pp. 82-97.

“TQM: Strategic Planning of Hoshin” (2004), Integrated Quality Dynamics (IQD), Inc., http://www.iqd.hoshin_sp.htm

US General Accounting Office Study (1991), Management Practices: U.S. Companies Improve Performance Through Quality Efforts (GAO NSIAD 91-190). May.

Vavra, T. G. (2002), “ISO 9001:2000 and Customer Satisfaction”, Quality Progress, Vol. 35, No. 5, pp. 69-75.

Vora, M. K. (2005), “Managing Human Capital”, Six Sigma for Transactions and Service, Chapter 17, pp. 471-500, McGraw-Hill, New York, NY.

Vora, M. K. (2005), “Balanced Scorecard and Hoshin Planning”, Invited Workshop Leader, Costa Rica Quality Conference, San Jose, Costa Rica, March 15.

Vora, M. K. (2004), “Sustaining Business Performance Excellence with the use of a Balanced Scorecard and Hoshin Planning”, Invited Seminar Leader and Keynote Address, 7th QMOD Conference, Monterrey, August 3, and August 4-6.

Vora, M. K. (2003), The Balanced Scorecard: Unlocking Secrets to Sustained Business Performance, Invited Seminars at Bangalore and Mumbai, India, October.

Vora, M. K. (2002), “Business Excellence through Quality Management”, Total Quality Management, Vol. 13, No. 8, pp. 1151-1159, December.


Muchas Gracias!

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Balanced Scorecard: Success through Leadership Enablersmadridexcelente.com/congreso2008/docs/Dr_Vora_BSC.pdf · Balanced Scorecard: Success through Leadership Enablers Manu K. Vora,